Guest blog by Jamie Anderson, CGAP
How are smallholder families managing their money? What challenges do they face? And what financial solutions can help?
Getting answers to these questions called for a year of data collection and thousands of conversations with farming families in three distinct markets. Researchers with CGAP’s Financial Diaries with Smallholder Households (‘Smallholder Diaries”) visited with 270 farming families in Mozambique, Tanzania, and Pakistan every two weeks from June 2014 to July 2015 to track how they were earning money, how they were spending it, and their agricultural activities. They also recorded all the ups and downs these families faced, from births and deaths to droughts and floods, offering a unique window onto their financial and agricultural lives.
So what did we learn? And how can these insights shape financial solutions for smallholder families? Five fresh facts emerge from the Smallholder Diaries.
- Mobile money was nearly absent.
Expectations are high for digital financial solutions, but our research indicates that this technology may not be an easy solution for the financial challenges facing many smallholder families.
We found that awareness of mobile money was high, but use was low. Over the entire year of data collection, only 19% of the families in the Tanzania sample actually used mobile money. No one in all of the Smallholder Diaries households in either Pakistan or Mozambique used it at all.
While digital financial solutions are appealing, they need to be more tailored to specific profiles of smallholder households and overcome basic barriers like access to a mobile phone and the capability to use it.
- Informal financial tools weren’t as prevalent as expected.
The use of informal financial tools – such as locally-led rotating savings and credit associations (ROSCAs) – didn’t emerge in the Smallholder Diaries data as strongly as expected. Even ROSCAs, the simplest and most accessible of these savings and credit groups – where members make small regular contributions toward obtaining a lump sum loan when their turn comes around – were used by only a tenth of the sample in Mozambique and a third in Tanzania.
Traditionally, these community-based savings groups, rooted in the power of one’s social network, tend to emerge in rural areas where there are few other financial options. Though they may be convenient, they are far from adequate. ROSCAs only provide group members with a quasi-liquid savings solution: each individual eventually gets back what they put into a ROSCA, plus more, but it takes time and they cannot withdraw their funds whenever they want, which makes some people hesitant to participate. This might make smallholders especially wary if they are relying on savings to buy seeds or fertilizer at very specific times of year. Additionally, savings groups can be risky—they can disappear without warning due to theft or collapse—and in many areas they simply don’t exist. In the Smallholder Diaries sample in Mozambique, for instance, with everyone in the community just getting by, there are fewer collective resources to pool. These results are a reminder that a lot of work remains in increasing access to even these entry-level financial tools.
- Smallholder households rely on a lot more than agriculture to support their families.
Surprisingly, while the Smallholder Diaries households in all three countries identified as “farmers,” they actually relied on many non-agricultural endeavors for their net cash income. In fact, in the Mozambique sample, 93% of the families’ net cash income came from sources other than agricultural production. This was also true for 74% of the families in the Tanzania sample and 58% of the families in the Pakistan sample.
But cash income is far from the whole story. In-kind income – a household’s own consumption of what it grows – is also vital for these families. This was most striking in the sample in Mozambique, where families consumed nearly all of what they produced. Taking in-kind income into account, the proportion of household income from crop production jumped from just 7 percent to 49 percent.
- Weather shocks hit hard, and smallholder families have few tools to cope.
Weather-related shocks dealt major hardships to families in each of the three samples. Within the last five years, for example, 72% of Smallholder Diaries families in Pakistan lost at least one-quarter of one of their crops to a weather shock. And often they had very few tools at hand to cope.
When their crops were destroyed by weather, three-quarters of the Tanzanian households in the Smallholder Diaries did nothing specific in response – they didn’t borrow money, they didn’t have crop insurance, they didn’t pick up an odd job to make extra money. They didn’t have fallback options. They had no tools to cope.
- Tailored solutions for distinct markets.
Smallholder farmers often have a few things in common: Their income from agriculture can be volatile, their agricultural expenses can be high, and their risks are wide-ranging, and often difficult to manage. But beyond that, there is tremendous diversity in what they grow, the techniques and technology they use, and where they sell their crops and livestock, if they sell anything at all.
The needs and struggles of each profile of smallholder households should be thoroughly understood and any approach tailored accordingly, whether it’s government policies, or agricultural extension, or financial products. There is not one cookie cutter solution to financial inclusion for smallholder households. Rather, there are as many distinct solutions—and opportunities—as there are major profiles of smallholder families.
For more information on the Smallholder Diaries, download the report or explore the interactive data visualization.
About Jamie Anderson:
Jamie Anderson is a Financial Sector Specialist focused on smallholder families at CGAP. Prior to CGAP, Jamie worked as an independent consultant in rural and agricultural finance for The Boulder Institute of Microfinance, USAID, CGAP, and GIZ, and as a Technical Advisor in Rural Finance at IFAD. She attended the University of California, Davis, where she earned an MBA, an MS in Agricultural and Resource Economics, and an MS in International Agricultural Development.
CGAP (the Consultative Group to Assist the Poor) is a global partnership of 34 leading organizations that seek to advance financial inclusion. CGAP develops innovative solutions through practical research and active engagement with financial service providers, policy makers, and funders to enable approaches at scale. Housed at the World Bank, CGAP combines a pragmatic approach to responsible market development with an evidence-based advocacy platform to increase access to the financial services the poor need to improve their lives.
Our mission is to improve the lives of poor people by spurring innovations and advancing knowledge and solutions that promote responsible, sustainable, inclusive financial markets.